Isis Loss Widens on Higher Expenses

Isis Pharmaceuticals Inc. (ISIS - Analyst Report) reported a net loss of 24 cents per share in the first quarter of 2012, above the year-ago loss of 20 cents but a penny below the Zacks Consensus loss Estimate. Revenues increased 9.9% to $23.2 million, missing the Zacks Consensus Estimate of $27 million. Higher operating expenses led to the year-over-year increase in loss.

Quarter in Detail

Revenues include license fees, milestone-related payments and other payments. First quarter 2012 revenues included the amortization of the $29 million upfront fee received from Biogen Idec (BIIB - Analyst Report) earlier this year.

Operating expenses increased 11.9% during the quarter to $41.7 million mainly due to the advancement of Isis Pharma’s pipeline. While research and development expenses increased 13.1% to $38.7 million, general and administrative expenses declined 1.1% to $2.9 million.

With Isis Pharma completing its $125 million funding obligation for Kynamro, Kynamro development expenses will be shared equally with Genzyme from 2012 until the product becomes profitable. As a result, Isis Pharma’s share of Kynamro related expenses are declining.

Update on Kynamro

Isis Pharma and partner Genzyme – a Sanofi (SNY - Analyst Report) subsidiary – filed for European approval of Isis Pharma's lead pipeline candidate, Kynamro (mipomersen), in July 2011. The companies are seeking approval for patients with homozygous familial hypercholesterolemia (FH) and severe heterozygous FH.

The US application was submitted in March 2012. The companies are seeking FDA approval for the use of Kynamro for the treatment of patients with homozygous familial hypercholesterolemia (HoFH). Isis Pharma said that Genzyme is preparing for the EU launch of Kynamro later this year.

Meanwhile, Isis Pharma and Genzyme are conducting a 12-month study (FOCUS FH - saFety and atherOgeniC lipoprotein redUction of mipomerSen in FH) with Kynamro. The study is being conducted to support the expansion of the initial label and support an alternative dosing regimen (three times a week). The study is being conducted under the FDA’s Special Protocol Assessment (SPA) program.

2012 Outlook

The acceptance of the Kynamro new drug application (NDA) filing and approval in the US will trigger milestone payments of $25 million each from Genzyme. While the $25 million milestone payment for the acceptance of the NDA filing will most likely be earned in the second quarter of 2012, the $25 million milestone payment for the approval of Kynamro will be due in 2013 given the January 2013 FDA action date. Expenses are expected to go up about 10% from 2011 levels mainly due to the expansion and maturation of the pipeline.

Neutral on Isis Pharma

We currently have a Neutral recommendation on Isis Pharma, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). We are positive on Isis’ agreements with GlaxoSmithKline (GSK - Analyst Report) and Biogen which not only validate its antisense technology but also provide Isis with funds in the form of upfront, milestone and other payments. With the EU filing of lead candidate, Kynamro, taking place in July 2011 and the US filing in March 2012, Isis could be in a position to launch the product in 2012. We expect investor focus to remain on the regulatory progress of Kynamro.